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Video Transcript

Hi everybody, Robert A. Bonavito, New Jersey forensic accountant.

Today we’re going to talk about the number one reason why divorces cost a fortune. Now, this video is going to apply to divorces, but litigation in general is going to apply too because we see so much time wasted in legal matters of all kinds where costs are ridiculous and time spent is ridiculous. It’s mainly because there’s a weak foundation. If you build a $10 million house on a swamp, obviously it’s all wasted. And that’s what we see in litigation. I’d say probably 90% of our cases involve lots of time and lots of fees, especially legal fees, being wasted.

With divorce specifically, there are three things that cost a lot of time and money. One is money, but the other one is time. People don’t think about this. If I could sit down with someone before they get divorced and say, “Listen, this divorce is going to take 80% of your net worth, and you’re going to end up in the exact same position you would have been if you didn’t spend that.”

In addition, it’s going to take two years of your time. You’re going to be thinking about the case at night. You’re not going to be sleeping. Your kids are going to be a wreck. And three, the main thing is that the whole reason you spend all this money and time is you have no leverage. You have no leverage because the numbers you have are not realistic or they’re not reliable.

When you don’t have facts, cases go on forever. Opinions are what cause litigation. That’s the problem. You don’t have facts, but you have opinions. That’s why things take years instead of months. There are cases that have been going on for two years. We get involved, and they’re over within three months. Why? Because we give the attorney real numbers, and they can discuss real numbers. They have something to focus on. There’s not a moving target.

Establishing Lifestyle

When you don’t establish lifestyle, which in most cases they never do, especially in divorce cases in New Jersey, the client will come in and the attorney will say, “Well, what’s your lifestyle?” They’ll just write it down and file what’s called the Case Information Statement. There’s no support. Sometimes there’s support, but it’s flimsy.

The problem is that in New Jersey there’s something called Crews v. Crews. This establishes what you need to do to determine marital lifestyle. That’s important for equitable distribution, alimony, child support, and everything else. It’s not done properly because no one wants to spend all that money upfront, not realizing this can return an enormous benefit.

If you spend the time upfront with the attorneys and forensic accountants and get this done right, the case could be over within four or six months instead of three years. Instead of costing 80% or 90% of your net worth, it might only cost 10%. It’s hard because it’s counterfactual. We tell people this, but they don’t know it yet. We’ve had cases where clients listened to us, and they didn’t realize how lucky they were because afterward there was enough money for both the husband and wife to buy homes and provide for the kids.

The Case Information Statement

The Case Information Statement is basically shelter, transportation, personal expenses, and a balance sheet of your assets. Garbage in, garbage out. Typically, this document should only be two or three pages long. The backup documentation is what’s important. That backup can be thousands of pages.

Attorneys don’t want to look at it. Judges don’t want to look at it. They don’t need to if we build it the proper way.

Much of the backup is basic information:

• Bank statements
• Mortgage information
• Rent
• Utilities

Everything can be backed up. The problem is it takes time and work. The attorneys aren’t going to do it. The client is usually guessing. We had one case where we analyzed roughly 300,000 credit card entries. We have cost-effective ways of doing that so when we testify, people can believe what we’re saying.

Building Reliable Financial Numbers

As forensic accountants, we typically:

• Pick a representative period.
• Categorize every dollar spent.
• Reconcile all inflows and outflows.
• Separate recurring and extraordinary expenses.

Extraordinary expenses might include college education or a wedding. Some years expenses are unusually high or low. Everyone thinks they know where they spend their money. They don’t.

People will tell you one thing, but once you analyze the records, the facts often say something completely different. The only way to prove what happened is to do the work. Go through the documentation. Analyze it. Use forensic accounting techniques to produce real numbers.

Finding Missing Money

Another reason clients hire us is because sometimes the numbers simply don’t add up. If your lifestyle costs $80,000 a month but your after-tax income is only $50,000, and you’re not borrowing money, then what’s happening? Maybe income isn’t being reported properly.

Tax returns are important, but people don’t always report everything. We like to trace every deposit. Sometimes we’ll find deposits that don’t make sense. We recently discovered money coming from a trust that nobody even knew existed. There were millions of dollars in it. Small discoveries often lead to much bigger issues. People often suspect offshore accounts. If they’re there, we’ll usually find evidence. Someone only needs to make one mistake. One transfer into the wrong account can reveal accounts in places like the Cayman Islands.

Bonuses and Business Owners

Many of our larger cases involve people with significant incomes or successful businesses. For example, Wall Street executives often receive bonuses that are two or three times their salaries. Sometimes those bonuses never appear in the couple’s bank accounts.

We’ll ask:

Where did they go? Were they deposited elsewhere? Were they given to relatives? Were they invested overseas?

Sometimes someone doesn’t even take the bonus directly. Instead, they receive ownership in another company, including companies located in the Cayman Islands. Business owners have many ways to move money. This work takes time. It has to be done correctly the first time. Every dollar spent here will save far more later.

Working Together with Attorneys

We’re the experts on money:

• Tax returns
• Financial statements
• Cash flow
• Financial analysis

Attorneys are the legal experts. We work together as a team. Sometimes attorneys don’t use forensic accountants and try to do everything themselves. That often creates problems. Those cases rarely settle quickly. Sometimes they get reopened later, creating even more legal issues.

Testifying as a Forensic Accountant

One of the biggest benefits we bring is that we’ve testified in thousands of cases. We know how to explain complicated financial information in a simple way everyone can understand. We’re not there to take sides. We’re there to help the judge make decisions using real numbers.

If my client told me they stole $400,000 and hid it somewhere, I couldn’t testify that it didn’t happen. That’s different from an attorney. Attorneys represent their clients.

Forensic accountants defend their opinions. If I find evidence that contradicts my opinion, I either tell the attorneys I can’t support it or I correct my opinion. Judges generally view forensic accountants as neutral parties, even though one side is paying us.

Why Good Financial Analysis Saves Money

When we testify, everything is based on facts. We explain the numbers simply so anyone can understand them. The stronger our testimony, the faster these cases settle.

For example, if we explain exactly what it costs to maintain the marital home and someone questions us, we simply provide the supporting documentation. One issue is resolved. Then we move on to the next issue. Eventually, everything is off the table and the parties can settle.

We determine:

• Income
• Expenses
• Assets
• Financial position as of the date of complaint

There isn’t a moving target. Yes, it’s expensive. Yes, it’s time-consuming. But if you spend the money upfront and do it correctly, you’ll save yourself hundreds and hundreds of dollars later. Even more importantly, you’ll save your time. The cases that are managed efficiently always end better. They cost less. They take less time. The entire family benefits.

Closing

Anyway, hopefully you enjoyed this video. If you have any questions, just leave them below. One of my staff members or I will get back to you. We answer every single question. Robert A. Bonavito, CPA.

If you have any questions, ask us. And if you liked this video, smash the like button. Thanks a lot. Bye.